Under Armour is facing possible enforcement action by the U.S. Securities and Exchange Commission (SEC) over allegations the retailer tried to bolster its bottom line by pushing forward sales numbers.
In a regulatory filing, the athletic apparel retailer stated that its two top executives, Founder and Executive Chairman Kevin Plank and CFO David Bergman, had received “Wells Notices” from the SEC on July 22.
The SEC issues the notices when it is planning to bring enforcement actions against particular firms, though the notices themselves are not a determination that there have been any legal violations, the company noted in its disclosure.
According to the communication from the SEC, the staff of the regulatory agency is recommending that an enforcement action be filed against Under Armour and its two top executives for alleged violations of federal securities laws, the company said.
The SEC has been examining Under Armour’s use of “pull forward” sales for revenue it reported for several quarters, starting in the third quarter of 2015 through the end of 2016, as a way to meet its sales goals.
In its filing, Under Armour describes a pull forward sale as one that is “executed earlier than originally planned,” stating the SEC staff “has not alleged any revenue recognition or other violations of generally accepted accounting principles.”
The SEC investigation, which Under Armour said it has been cooperating with since 2017, comes as the retailer battles rising competition from Nike and Lululemon. Under Armour earlier this year predicted a drop in sales, and warned previously it could see as much as $60 million in sales evaporate in the first quarter alone due to the coronavirus.
Noting the verdict from the SEC is not in yet, Under Armour said it plans to contest the SEC staff’s preliminary findings, with hopes to “engage in a dialogue with the SEC Staff to work toward a resolution of this matter.”
“The company and the executives maintain that their actions were appropriate and intend to pursue the Wells Notice process,” Under Armour stated in its disclosure to investors that it had received the SEC notices.